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Managed Care: Avoiding the Pitfalls

By Armand Leone, Jr.

Managed care is here to stay. While physicians' opinions run the gamut from excitement at the new opportunity, to despair over the death of traditional health care, there are some-pitfalls for all doctors to avoid and tips that can help them deal with managed care organizations. The biggest mistake about managed care is assuming it can be avoided. In the past medical treatment has depended more on coverage than on relative medical necessity. Managed care places an emphasis on relative medical need in allocating what must necessarily be limited health care resources. The two primary managed care models are the discounted fee for service schedule used by preferred provider organizations (PPOs) and the health maintenance organization (HMO) model, which is based on capitation, a form of financial risk-sharing between physicians and health care payers. Because economics now require these more socially responsible systems for the delivery of health care, the worst thing a physician can do is to complain and do nothing.

The best way to avoid problems when contracting with a managed care organization is to have the assistance of a medical practice consultant and/or a health care lawyer experienced in managed care contracting. Physicians do not have the time to read all of the contractual provisions, let alone review the numerous documents and conditions that are incorporated by reference into the main contract. However, there are certain contractual provisions that should be analyzed by a physician. These include indemnification clauses; criteria for selection and deselection of member physicians; the way in which compensation is tied to practice patterns: and what the physician's rights are when appealing a declination of a request for treatment or deselection from the organization.

In order to negotiate effectively with managed care organizations, physicians need to generate statistics concerning their practice. While outcome analysis research is still in its infancy, specific software programs allow physicians to analyze the efficacy of their treatment decisions as well as the costs. Using such information, physicians can accurately present and defend fee schedules with managed care organizations. With the increasing use of capitation as a method of physician compensation, outcome analysis research is critical to a physician's profitability. If a physician agrees to a capitation rate that is too low, the medical practice will go bankrupt.

Another way physicians can participate in and improve managed care is to become involved with the development of practice parameters, both on national and institutional levels: when physicians participate at the national level in developing clinical practice guidelines based on scientific outcome analysis research, the quality of health care improves and its delivery becomes more cost-effective. Participation in committees of specialty organizations that develop guidelines concerning their area of medicine is yet another way physicians can protect the quality of health care. Additionally, by participating in the managed care organizations' development of internal guidelines, physicians can make certain that their practice patterns are incorporated into the allowable treatment pathways.

Physicians must also take care to offset the increased risk of malpractice suits created by managed care by finding ways to continue communicating with their patients. Poor communication, when coupled with a bad clinical result, is the major reason most medical malpractice claims are filed. An unavoidable consequence of managed care is an increased emphasis on seeing a larger number of patients, combined with a greater rationing of health care based on relative medical needs. This often results in less time spent with the patient by the physician and, often, less treatment. By finding ways to effectively utilize ancillary staff, such as nurse-practitioners and physician assistants, physicians should be able to maintain good patient communication without spending an excessive amount of time with each patient and, in so doing, cause operating losses. The courtesy exhibited by the physician's office staff becomes a critical factor in patient satisfaction. This extends to minor items such as returning phone calls promptly and assisting patients to arrange appointments conveniently.

Managed care is here to stay. Therefore, physicians need to realize that professional advice is available to help them contract with managed care organizations. Additionally, physicians need to develop ways to analyze their practices so they can accurately and effectively negotiate with managed care organizations. As risk-sharing in the form of capitation becomes more prevalent, accurate financial analysis of the practice patterns is critical to financial success. Lastly, the importance of maintaining open communication and good staff- patient relations cannot be overestimated, since managed care tends to depersonalize treatment.

A GLOSSARY OF MANAGED CARE TERMS

Capitation: A method of payment for health care services in which the provider accepts a fixed amount of payment per subscriber, per period of time, in exchange for specified services rendered over a period of time.

Concurrent Review: Review of a procedure or hospital admission conducted by a health care professional other than the one providing the care (usually a nurse).

Credentialing: The process of reviewing a practitioner's credentials, i.e., training, experience, or demonstrated ability, to determine if criteria for clinical privileging are met.

Discounted Fees: Arrangements whereby a provider agrees to provide services on a fee-for-service basis with fees discounted by a given percentage from the physician's usual charge.

Fee-for-Service: A system of payment for health care whereby a fee is rendered for each service delivered. Under the fee-for- service system, expenditures increase not only if the fees themselves increase but also if more units of service are charged or more expensive services are substituted for less expensive ones. This traditional method contrasts with that frequently used in the prepaid sector where services are covered by a fixed payment made in advance that is independent of the number of services rendered (capitation).

Gatekeeping: The process by which a primary care physician directly provides the primary patient care and coordinates all diagnostic testing and specialty referrals required for a patient's medical care. Referrals must be prior-authorized by the "gatekeeper" unless there is an emergency. Gatekeeping is a subset of the functions of the primary physician case manager.

Group Contract: An agreement between a managed care company and a subscribing group containing rates, performance covenants, relationships among parties, schedule of benefits, and other conditions. The term is generally limited to a 12-month period but may be renewed.

Health Maintenance Organization (HMO): Any organization that, through an organized system of health care, provides or assures delivery of an agreed-upon set of comprehensive health maintenance and treatment services for an enrolled group of persons for a prepaid fixed sum. Services usually include primary care, emergency care, acute hospital care, extended care and rehabilitation.

Federally Qualified HMO: To be considered a "Federally Qualified Health Maintenance Organization," an HMO must meet the provisions of the HMO Act, P.L. 93-222, as amended, in Title XIII of the Public Health Service Act.

Group Model HMO: An HMO that contracts with a multispecialty medical group to provide services to HMO enrollees. The medical group is managed independently of the HMO. The medical group, not the HMO, contracts with physicians who are members and pays them directly. Payment from the medical group to the physicians is often on a salary or fee-for-service basis. The medical group is reimbursed by the HMO. Payment is usually on a capitation basis.

Independent Practice Association: (IPA) Model HMO. An HMO that contracts with individual fee-for-service physicians to provide services to HMO enrollees in the physician's private offices. The HMO may contract directly with independent physicians or with groups of physicians. Physicians in IPAs are usually paid on either a discounted fee-for-service or a capitation basis. Discounts are often accompanied by withholds. (See Withholds at end of glossary).

Network Model HMO: An HMO that contracts with two or more independent group medical practices to provide services to HMO enrollees. Physicians are usually paid by the HMO on a capitation basis.

Staff Model HMO: An HMO that owns the clinical facilities where the enrolled population receives services. The staff model HMO employs physicians and pays them on a salaried basis.

Hybrid Model HMO: An HMO that combines elements of staff, group, and IPA models.

Managed Care Organization (MCO): A generic term that includes all forms of organizations that provide managed health care services, for example, HMO, PPO, CMP, EPO, DPO, PPA.

Medical Director: Physician responsible for bridging health care delivery with management and administration. Major responsibilities include maintaining a provider network, utilization review, and quality assurance. Performance Bonus: Offered to providers in addition to capitation amounts, salaries, or fees, on the basis of the physician's performance in meeting the managed care organization's targets for controlled utilization and cost. Prior authorization: A method of monitoring and controlling utilization by evaluating the need for medical service prior to its being performed.

Preferred Provider Organization (PPO): A PPO is an entity through which employer health benefit plans and health insurance carriers contract to purchase health care services for covered beneficiaries from a selected group of participating providers. Unlike typical HMO coverage, PPO coverage permits members to use non-participating providers. Some PPOs require providers to share in the financial risk. Others employ the gatekeeping concept.

Withholds: The portion of the monthly capitation payments to physicians withheld by an HMO until a year-end review of utilization norms. A physician who exceeds utilization norms does not receive the withheld amount. The withhold can cover all services or be specific to hospital care, laboratory usage, or specialty referrals.

A. Leone, Managed Care: Avoiding the Pitfalls, Chironian, Vol. 112 at 6 (1995).

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